BANKRUPTCY

the status of a debtor who has been declared by judicial process to be unable to pay his debts. The terms bankruptcy and insolvency, although sometimes used indiscriminately, have distinct legal significations. Insolvency, as the term is used in the equity receivership courts in the United States, in state insolvency laws, and in the English and most European bankruptcy laws, means inability to meet debts as they mature; but in England, for example, there is no special procedure relating to one who is merely insolvent. Insolvency as it is defined in the U.S. federal bankruptcy act means that the aggregate of the debtor's property, at a fair valuation, is insufficient to pay his debts. A debtor may be insolvent without becoming a bankrupt. Conversely, because proof of insolvency is not required where the debtor files a voluntary petition in bankruptcy or where an involuntary petition filed by his creditors alleges the commission of certain acts of bankruptcy, a debtor may become a bankrupt without being insolvent. A bankruptcy adjudication is a legal declaration that the debtor has filed a proper voluntary petition or that creditors have filed and supported a proper involuntary petition against him. The adjudication initiates a statutory proceeding for the administration of the debtor's property, which is thereby taken out of his personal control. The primary objects of bankruptcy legislation are to obtain justice while not pressing unduly on debtors, to discriminate between involuntary inability to meet obligations and willful refusal or neglect, and to secure to creditors an equitable share of the debtor's assets available for the payment of his liabilities. Another object has marked modern legislation, namely, the fostering of a higher tone of commercial morality and the protection of the trading community at large from the evils arising through the reckless abuse of credit and through unnatural trade competition. Because creditors have conflicting interests and are therefore incapable of acting together as a homogeneous body, it is necessary to obtain the aid of professional assignees or trustees, solicitors, and other agents, who make it their special business to deal with such matters, exercising both administrative and quasi-judicial functions, in return for the remuneration that they receive out of the property for their services. In common-law countries today, rehabilitation of the bankrupt is a major concern, provided, of course, that his insolvency did not involve fraud. Such relief for honest debtors dates back as far as 1705 in England, when a statute was passed establishing that, once a debtor had complied with the court's decisions, he was released from obligation. Such a release, or discharge, may, however, be conditional. Modern attitudes in civil-law countries as well as in common-law countries regard liquidation as something to be avoided if possible, and efforts are made to enlist the creditors in plans to rehabilitate the estate. the status of a debtor who has been declared by judicial process to be unable to pay his debts. Although sometimes used indiscriminately to mean insolvency, the terms have distinct legal significance. Insolvency, as used in most legal systems, indicates the inability to meet debts. Bankruptcy, on the other hand, results from a legal adjudication that the debtor has filed a petition or that creditors have filed a petition against him. Bankruptcy laws were enacted to provide and govern an orderly and equitable liquidation of the estates of insolvent debtors. This purpose has remained an important aim of bankruptcy legislation since the Middle Ages. Because in the past bankruptcy was coupled with the loss of civil rights and imposition of penalties upon fraudulent debtors, the designation bankrupt came to be associated with dishonesty, casting a stigma on persons who were declared bankrupts. Eventually, however, bankruptcy legislation was extended to provide procedures for the adjustment of debts so as to avoid liquidation and for the rehabilitation of insolvent debtors. Modern bankruptcy laws, therefore, include detailed provisions for preventive compositions, arrangements, or corporate reorganizations of various types. In fact, the salvage of an enterprise in financial difficulties has become the principal focus of bankruptcy legislation with particular concern for the maintenance of employment opportunities and the protection of members of the labour force. In addition, the bankruptcy laws of England, the United States, and the British Commonwealth nations traditionally came to include provisions for the unpaid portions of debts incurred prior to bankruptcy in order to give honest but unfortunate debtors a new start in life. The bankruptcy laws of the European and Latin-American countries, by contrast, did not have such provisions. In the late 20th century, however, legislation in some of these countries (e.g., Argentina and France) provided for the discharge of the unpaid portion of pre-bankruptcy creditors under certain conditions. Since bankruptcy laws aim at the liquidation or rehabilitation of insolvent estates, bankruptcy proceedings involve all nonexempt assets of the debtor, and all creditors entitled to share in the proceeds of the liquidation or in the adjustment of their claims are called to participate. Accordingly, bankruptcy proceedings are viewed as general or universal collection procedures as distinguished from individual collection remedies available to particular creditors for the enforcement of their claims. Additional reading While the general aims and features of bankruptcy law in most countries are similar, substantive and procedural rules vary greatly. Modern reforms are treated in the following: (Argentina): Hctor Camara, El concurso preventivo y la quiebra: Commentario de la ley 19.551, 3 vol. (197882); and Enrique J.M. Erramuspe and Stella Maris Di Luca, Manual practico de concursos y quiebras, 2 vol. (1984). (Australia): A.N. Lewis, Lewis's Australian Bankruptcy Law, 8th ed. by Dennis J. Rose (1984). (Austria): Richard Holzhammer, sterreichisches Insolvenzrecht: Konkurs und Ausgleich, 2nd rev. ed. (1983). (Brazil): Christino Almeida Do Valle, Teoria e Prtica das Falncias e Concordatas, 2nd ed. updated and enlarged (1985). (Canada): L.W. Houlden and C.H. Morawetz, Bankruptcy Law of Canada, 2 loose-leaf vol. (1984). (Chile): Alvaro Puelma Accorsi, Curso de derecho de quiebras, 3rd rev. ed. (1983). (England): Christopher Berry and Edward Bailey, Bankruptcy: Law and Practice (1987). (France): Fernand Derrida, Pierre God, and Jean-Pierre Sortais, Redressement et liquidation judiciaires des entreprises (1986). (East Germany): Horst Kellner (ed.), Zivilprozessrecht: Lehrbuch (1980). (West Germany): Ernst Jger, Konkursordnung mit Einfhrungsgesetzen, 3 vol., 9th rev. ed. edited by Wolfram Henckel, Friedrich Weber, and Gnther Jahr (197782); Georg Kuhn and Wilhelm Uhlenbruck, Konkursordnung: Kommentar, 10th rev. ed. (1986); and Bundesministerium der Justiz, Erster Bericht der Kommission fr Insolvenzrecht (1985), and Zweiter Bericht der Kommission fr Insolvenzrecht (1986). (India): Dinshah Fardunji Mulla, Mulla on the Law of Insolvency in India, 3rd ed. by D.S. Chopra (1977). (Italy): Domenico Mazzocca, Manuale de diritto fallimentare (1980); and Bartolomeo Quatraro, L'amministrazione straordinaria delle grandi emprese in crisi, 2 vol. (1985). (Japan): EHS Law Bulletin Series, vol. 2, no. 2340, Bankruptcy Law (Law No. 71), April 25, 1922 (1976), no. 2345, Composition Law (Law No. 72), April 25, 1922 (1975), no. 2346, Special Composition Law (Law No. 41), Oct. 18, 1946 (1975), and no. 2350, Corporate Reorganization Law (Law No. 172), June 7, 1952 (1983); and Mary E. Hiscock and Kazuaki Soo, Security Interests and Insolvency in Japan, Rabels Zeitschrift fr auslndisches und internationales Privatrecht, 44:757783 (1980). (Mexico): Joaqun Rodrguez Rodrguez (comp.), Ley de quiebras y de suspensin de pagos, 9th ed. rev. by Jos Vctor Rodrguez Del Castillo (1983). (New Zealand): F.C. Spratt, Spratt and McKenzie's Law of Insolvency, 2nd ed. edited by P.D. McKenzie (1972). (Portugal): Antnio Mota Salgado, Falncia e Insolvncia (1982). (South Africa): Walter Herbert Mars and Harold Edward Hockley, The Law of Insolvency in South Africa, 7th ed. by David Frobisher Waters and Richard Dennis Jooste (1980); Catherine Smith, The Law of Insolvency, 2nd ed. (1982); and David Shrand, The Law and Practice of Insolvency Winding-Up of Companies and Judicial Management, 3rd ed. (1977). (Spain): Francisco Ramos Mndez, Derecho procesal civil (1980), especially ch. 77, pp. 11751212; and Ministerio de Justicia, Secretara General Tcnica, Anteproyecto de ley concursal (1983). (Switzerland): Hans Fritzsche, Schuldbetreibung und Konkurs nach schweizerischem Recht, 3rd ed. edited by Hans Ulrich Walder-Bohner (1984 ). (United States): Lawrence P. King (ed.), Collier on Bankruptcy, 15th ed., 7 loose-leaf vol. (197987). (Venezuela): Jos Ramn Burgos Villasmil, La quiebra en el derecho venezolano (1985). Stefan Albrecht Riesenfeld